Top 6 Tobacco Stories of 2017

CHICAGO -- The U.S. Food and Drug Administration’s (FDA's) change of heart on vaping along with the finalization of British American Tobacco’s (BAT) acquisition of Reynolds American Inc. (RAI) topped a tumultuous year in the tobacco category.

For much of 2017, manufacturers and retailers were in limbo about how the new FDA commissioner would handle previously announced regulations. Then in midsummer, the FDA unveiled a new direction focused on nicotine levels and alternatives to combustible cigarettes that put a more positive light on the category.

Conversely, lawmakers at the state and local levels made tobacco retailing more difficult with new bans on flavored tobacco and other efforts to restrict sales.

Here’s the top six tobacco stories of 2017 …

1. The FDA's new focus

The tobacco outlook took a sharp turn in a positive direction over the summer when Dr. Scott Gottlieb, the newly appointed commissioner of the FDA, issued a document that suggests a remaking of current tobacco regulation.

In a July statement, Gottlieb said alternatives to combustible cigarettes, such as electronic cigarettes, are in need of further public discussion, and he extended deadlines for manufacturers to submit required new-product applications. Many manufacturers feared those applications would be costly and time-consuming, so the news came as a relief. Now instead of 2018 deadlines, products such as cigars, pipe tobacco and hookah tobacco have a deadline of Aug. 8, 2021, and e-cigarettes or vaping products have an Aug. 8, 2022, deadline.

Also part of the FDA’s new position was the concept of regulating nicotine levels in cigarettes, with the agency calling for input on benefits and adverse effects.

Retailers reacted with optimism. During an Aug. 3 investor call, Donnie Smith, vice president and controller for El Dorado, Ark.-based Murphy USA, expressed confidence that the FDA’s review would involve “real science and understanding the unintended consequences of any regulation.”

2. California excise tax

A larger-than-expected drop in cigarette-tax revenue appears to be the initial result of California’s $2-a-pack increase that took effect April 1, according to a nonpartisan study. Instead of the expected 20% to 30% falloff in tax revenue, the Legislative Analyst’s Office in Sacramento, Calif., said the actual drop was 64%, as researchers compared taxes assessed in May 2016 to May 2017.

3. BAT-Reynolds deal

With its $47 billion purchase of the remaining shares of Winston-Salem, N.C.-based Reynolds American Inc. closing July 25, British American Tobacco (BAT), London, became the largest global tobacco manufacturer in terms of sales and access to the lucrative U.S. market.

4. Menthol restrictions

California may be known for earthquakes, but San Francisco could rock the c-store channel with its board of supervisors banning the sale of menthol cigarettes—a move that could slash tobacco sales in the city by as much as 35% when the law goes into effect next year, according to one state estimate. The board passed the ban June 20, with an implementation date set for April 2018.

The measure’s approval came soon after Ted Egan, chief economist for San Francisco’s controller’s office, issued a report detailing the ban’s potential economic effects, which included a $50.5 million loss in annual sales.

Minneapolis and St. Paul, Minn., made similar moves with their own menthol restrictions. When the Minneapolis City Council voted Aug. 4 to restrict the sale of menthol-flavored tobacco products to over-21 locations such as tobacco shops and liquor stores, convenience-store retailers voiced their objections during an emotional public hearing this past summer. The events leading up to the vote were a firsthand illustration of retailers taking action against restrictive legislation. Weeks later, St. Paul lawmakers voted to impose the same restrictions, limiting sales to over-21 locations.

5. iQOS potential

With Philip Morris International (PMI), New York, taking steps toward federal approval of its heat-not-burn product called iQOS, the FDA recently published several of PMI’s filed documents, revealing a wide range of details, including a description of the product itself, advertising plans and studies to prove various health claims as compared to traditional combustible cigarettes.

At this year’s CSP Outlook Leadership Conference, executives with Altria Group Distribution Co., Richmond, Va., which holds the rights to distribute iQOS in the United States, said that if the FDA sticks to its own timelines, Altria expects the premarket tobacco product application (PMTA) for iQOS to come out sometime early next year. That would further the process for FDA approval to introduce the product into the U.S. market. Officials also said they predicted the FDA would make a decision on PMI’s modified risk tobacco product application (MRTP) by the end of next year. If approved, the cigarette manufacturer could make reduced-risk claims with iQOS.

6. NJOY comes out of bankruptcy

NJOY LLC, Scottsdale, Ariz., acquired the assets of NJOY Inc. as part of the e-cigarette maker’s financial restructuring. NJOY Inc., which was founded in 2006, declared bankruptcy in September 2016, citing an accumulated deficit of $234.4 million and $16 million in accounts payable. After completing a $35 million equity capital raise, the new owners are optimistic about the product's future. “Today marks a fresh financial start for the NJOY brand,” said Douglas Teitelbaum, chairman and CEO of NJOY LLC. “With the completion of this acquisition and capital raise, we now have ample liquidity and can focus on delivering for our customers.”

Since 2003 CSP magazine has ranked No. 1 in readership and market share over all other industry publications. C-store marketers have identified CSP as the preferred magazine source for their trade marketing communications. With industry-leading, highly targeted circulation to more than 100,000 subscribers, CSP reaches the key convenience retailing decision-makers fifteen times a year.